Tax gain harvest or Roth conversion

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red light
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Tax gain harvest or Roth conversion

Post by red light »

Hi,
A long time lurker here.
I have $400K of LT capital gain and $2M tIRA. For the next 4 years, should I

1) Harvest $100K gain each year + pay $0 federal tax + eligible for some premium tax credit (PTC)
2) Roth convert up to 24% bracket ($329,850/year) + 15% tax on LT cap gain to pay tax for the conversion + $0 PTC
3) Extreme version of 2). Convert all $2M tIRA in 4 years ($500k/year) and be done with it OR
4) A mixture of 1) and 2), for example, do 1) for 2 years and 2) for 2 years ???

My plan is to leave most of the $2M to our kids. I'm 58. Wife is 55. We are both retired and have about $5K/year investment income (interest, dividend, capital gain).
Thank you.
bloom2708
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Re: Tax gain harvest or Roth conversion

Post by bloom2708 »

Welcome.

The group likely needs more information to assist. The best answer may be to do none of those things. Or do them at a much slower pace.

https://www.bogleheads.org/wiki/Asking_ ... _questions

Are you still working or one or both retired?

What are your sources of income if you are retired? Any pension income?

Without any gain harvesting or Roth conversions, what is your marginal Fed tax bracket? State tax?

If you don't intend on spending any of the $2 million, I for sure would not do #3. I'd rather pay tax at 75 or 80 in an RMD that at 58-62 and use up a bunch of taxable funds.

Without knowing more, I'd say to do none of those and pay taxes as you need the money. RMD is delayed until 72.5 now and the first priority is to live to 72+

Welcome again. Hopefully others have some ideas.
suemarkp
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Re: Tax gain harvest or Roth conversion

Post by suemarkp »

Seems like tax gain harvesting give you the biggest gain (0% LTCG tax versus 15%).

However, think about what is more valuable to will to children - an IRA that has a required spend down plan (10 years I think), or your taxable account which they can inherit and take the current value as a new cost basis.

What kind of incomes do (or will) the children have when you pass? Is giving them an IRA with a required withdraw rate a tax waste for them?
Mark | Somewhere in WA State
Topic Author
red light
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Re: Tax gain harvest or Roth conversion

Post by red light »

We have enough cash to cover expenses for the next four (4) years. Without any gain harvesting or Roth conversions, we expect our marginal tax rate to be 0%. Therefore, we would like to use this opportunity to do either gain harvesting or Roth conversions.

We will not need the $2M tIRA and would like to pass it to our children (2). Based on the Retiree Portfolio Model, https://www.bogleheads.org/wiki/Retiree_Portfolio_Model, without doing any Roth conversion, the tIRA balance might grow to $6M+ (today's dollars) after 30 years. If this is true, our children would have to pay lots of tax. We prefer not to push this tax liability to them and wonder if we should use this next 4 years for conversions.

On the other hand, we also have a $400k LT capital gain which we could harvest without paying any federal tax.

What should we do?
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anon_investor
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Re: Tax gain harvest or Roth conversion

Post by anon_investor »

red light wrote: Thu Oct 21, 2021 3:02 pm We have enough cash to cover expenses for the next four (4) years. Without any gain harvesting or Roth conversions, we expect our marginal tax rate to be 0%. Therefore, we would like to use this opportunity to do either gain harvesting or Roth conversions.

We will not need the $2M tIRA and would like to pass it to our children (2). Based on the Retiree Portfolio Model, https://www.bogleheads.org/wiki/Retiree_Portfolio_Model, without doing any Roth conversion, the tIRA balance might grow to $6M+ (today's dollars) after 30 years. If this is true, our children would have to pay lots of tax. We prefer not to push this tax liability to them and wonder if we should use this next 4 years for conversions.

On the other hand, we also have a $400k LT capital gain which we could harvest without paying any federal tax.

What should we do?
I would do Roth conversions.

Lowers future RMDs and taxable account under current law gets a step up in basis upon death.
fyre4ce
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Re: Tax gain harvest or Roth conversion

Post by fyre4ce »

Roth conversions at a low rate tend to be more valuable than harvesting gains at 0%, but it does depend somewhat on circumstances. You're still young, but taxable investments get a step-up in basis anyway (basically a big gain harvest at 0%) whereas pre-tax IRA assets have to be withdrawn by your heirs in 10 years. So from an estate planning perspective, Roth conversions are the clear winner. Can you say anything about the tax situation of your likely heirs? Eg. are your kids investment bankers in NYC, or grade-school teachers in Texas? That will affect the relative value of pre-tax, Roth, and taxable assets for your estate.
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calmaniac
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Re: Tax gain harvest or Roth conversion

Post by calmaniac »

If your long-term capital gains are left untouched, they will be inherited without capital gains upon your passing. If you are comfortable with the current investments in your taxable account (e.g. broad market index fund and not a single undiversified [risky] stock) consider leaving that as is.

Without knowing more and given the above, I would prioritize the Roth conversions.
"Pretired", working 20 h/wk. AA 75/25: 30% TSM, 19% value (VFVA/AVUV), 18% Int'l LC, 8% emerging, 25% GFund/VBTLX. Military pension ≈60% of expenses. Pension+SS@age 70 ≈100% of expenses.
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retiredjg
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Re: Tax gain harvest or Roth conversion

Post by retiredjg »

Think I would do Roth conversions, but less than you are thinking of. There is no reason you have to convert it all and there is no rush to do the conversions in 4 years or some other short time period.

There is a reason to convert some (to prevent a tax bomb later). However if you get the IRA down to a more manageable amount (even just $1 million) you can live on the IRA (and maybe taxable) while paying tax in a fairly low bracket.

The capital gains are not a problem for your kids since they get a stepped up basis when you die and there is no time limit on how fast they take the money from the account.
RetiredAL
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Re: Tax gain harvest or Roth conversion

Post by RetiredAL »

retiredjg wrote: Thu Oct 21, 2021 3:31 pm Think I would do Roth conversions, but less than you are thinking of. There is no reason you have to convert it all and there is no rush to do the conversions in 4 years or some other short time period.

There is a reason to convert some (to prevent a tax bomb later). However if you get the IRA down to a more manageable amount (even just $1 million) you can live on the IRA (and maybe taxable) while paying tax in a fairly low bracket.

The capital gains are not a problem for your kids since they get a stepped up basis when you die and there is no time limit on how fast they take the money from the account.
+1 with retiredjg's comments.

Our last to spend $ - thus most likely go to our kid's - is our Roth accounts. In addition to fully funding our Roths for nearly 20 years, I have modestly converted some IRA to Roth each year since I retired. RMD's start next year. About 60% the RMD will go to living expenses, the rest to taxable investment. Our primary retirement financing is from my IRA's and our SS. I feel this plan gives the best tax deal to our kids to inherit. One is in the 32% bracket, one is in middle of the current 22% bracket, the other is just barely under the 22% bracket, so any IRA $ withdrawn over 10 years will get dinged pretty hard by their taxes, vs. our Roths and taxable $ will get to them tax free.
Last edited by RetiredAL on Thu Oct 21, 2021 4:53 pm, edited 1 time in total.
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Lee_WSP
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Re: Tax gain harvest or Roth conversion

Post by Lee_WSP »

You can defer LTCGs indefinitely. You cannot defer IRA withdrawals indefinitely. Conversions should be the priority. Up to what bracket you convert though is up for debate. At least the 12% bracket. I'd lean towards filling up at least the 22% bracket. The 24% bracket will depend on what inputs go into the prediction calculation.
fyre4ce
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Re: Tax gain harvest or Roth conversion

Post by fyre4ce »

Also: if you Roth-convert, it's better to pay the tax bill with money outside of the IRA (rather than withhold converted money for taxes, which will probably trigger an early withdrawal penalty anyway). That way you effectively transfer money from outside retirement accounts to money inside. Given your substantial taxable assets there's no reason not to.
J295
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Re: Tax gain harvest or Roth conversion

Post by J295 »

Watching the thread as our situation has some similarities, and noting ....

I perceive that generally the posters on this forum believe in the value of Roth conversions in most situations. We haven't converted because we've prioritized controlling MAGI to preserve PTC under ACA. As you likely know, until this year there was a cliff on the PTC eligibility (for us it is a $26,500 premium savings this year, and scheduled to go to $32,500 next year). The cliff is gone this year and next, and I think most generally agree that the federal premium "cost" for going past the threshold is 8.5%. (plus of course federal tax and state tax on the increased recognized income).

I don't have insights on best options for your situation as I haven't drilled down thinking about it but looking forward to the dialogue.

Four years from now where do you anticipate obtaining your income for yearly expenses?
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Peter Foley
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Re: Tax gain harvest or Roth conversion

Post by Peter Foley »

Let's backtrack to the beginning just to make sure we are on the same page. In 2021 there are long term capital gains at 15% above a taxable income of $80,801.

Married filing jointly deductible is $25,100. Therefore your starting point for long term capital gains and dividends taxation is $105,900 in AGI.

Your 5K/year income is a mix of regular income and income potentially subject to the 15% rate.

Off the top of my head I would say the best approach would be a combination of capital gains and Roth conversion. Having some money in a tax free Roth in 5 years gives you more flexibility in terms of managing your tax bracket long term.
Topic Author
red light
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Re: Tax gain harvest or Roth conversion

Post by red light »

J295 wrote: Thu Oct 21, 2021 6:50 pm Four years from now where do you anticipate obtaining your income for yearly expenses?
First from our taxable accounts then pensions @ 65, and SS @70. Pensions and SS should cover all our yearly expenses in later years.
Peter Foley wrote: Thu Oct 21, 2021 8:24 pm Let's backtrack to the beginning just to make sure we are on the same page. In 2021 there are long term capital gains at 15% above a taxable income of $80,801.

Married filing jointly deductible is $25,100. Therefore your starting point for long term capital gains and dividends taxation is $105,900 in AGI.

Your 5K/year income is a mix of regular income and income potentially subject to the 15% rate.
Assume the $5k/year is ordinary income (such as taxable interest), if the LTCG is $100,900 = $105,900 - $5,000 then the federal tax should be still $0, right?
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red light
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Re: Tax gain harvest or Roth conversion

Post by red light »

suemarkp wrote: Thu Oct 21, 2021 2:21 pm What kind of incomes do (or will) the children have when you pass? Is giving them an IRA with a required withdraw rate a tax waste for them?
fyre4ce wrote: Thu Oct 21, 2021 3:10 pm Can you say anything about the tax situation of your likely heirs? Eg. are your kids investment bankers in NYC, or grade-school teachers in Texas? That will affect the relative value of pre-tax, Roth, and taxable assets for your estate.
I expect my children to be working in either STEM or healthcare fields. About $100K/year? I guess.
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Peter Foley
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Re: Tax gain harvest or Roth conversion

Post by Peter Foley »

red light wrote:
First from our taxable accounts then pensions @ 65, and SS @70. Pensions and SS should cover all our yearly expenses in later years.
This is likely not the most tax efficient way to do your withdrawals.

I suggest you run the numbers for various options through the Retiree Portfolio Model calculator.

While not necessarily true in your case, the best option for many couples is to target a mix of withdrawals while staying in the 12% tax bracket.
JoinToday
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Re: Tax gain harvest or Roth conversion

Post by JoinToday »

red light wrote: Thu Oct 21, 2021 10:14 am Hi,
A long time lurker here.
I have $400K of LT capital gain and $2M tIRA. For the next 4 years, should I

1) Harvest $100K gain each year + pay $0 federal tax + eligible for some premium tax credit (PTC)
2) Roth convert up to 24% bracket ($329,850/year) + 15% tax on LT cap gain to pay tax for the conversion + $0 PTC
3) Extreme version of 2). Convert all $2M tIRA in 4 years ($500k/year) and be done with it OR
4) A mixture of 1) and 2), for example, do 1) for 2 years and 2) for 2 years ???

My plan is to leave most of the $2M to our kids. I'm 58. Wife is 55. We are both retired and have about $5K/year investment income (interest, dividend, capital gain).
Thank you.
For what it is worth, I am not selling any more after tax equity with low cost basis. Beneficiaries will inherit it with stepped up basis. I have been doing the Roth conversions to the top of the 24% bracket until it goes away (2025 is the last year), then I will reevaluate the tax brackets.

Note that there is an additional NIIT tax of 3.8% for passive income above $250K. And the window you have now until age 63 allows you to do higher Roth conversions without the IRMAA surcharge, something I kind of ignored but now realize it is some money. Unfortunately, AMT with the associated 41.8% marginal tax rate (incl Calif taxes) deterred me from doing larger Roth conversions prior to 2018.

I am chipping away, doing approximately $300 - $320K Roth conversions every year now. I assume my beneficiaries to be in higher brackets, and assume tax brackets will be higher in the future.
I wish I had learned about index funds 25 years ago
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dodecahedron
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Re: Tax gain harvest or Roth conversion

Post by dodecahedron »

red light wrote: Thu Oct 21, 2021 10:14 am Hi,
A long time lurker here.
I have $400K of LT capital gain and $2M tIRA. For the next 4 years, should I

1) Harvest $100K gain each year + pay $0 federal tax + eligible for some premium tax credit (PTC)
Not sure about your assertion that you can harvest $100K gain and remain eligible for PTC for next four years. How big is your family ("tax household") size? Do you realize that your harvested gains will be included in your MAGI for PTC purposes?
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red light
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Re: Tax gain harvest or Roth conversion

Post by red light »

dodecahedron wrote: Fri Oct 22, 2021 2:57 am Not sure about your assertion that you can harvest $100K gain and remain eligible for PTC for next four years. How big is your family ("tax household") size? Do you realize that your harvested gains will be included in your MAGI for PTC purposes?
There are 4 of us (3 adults + 1 child). It looks like we could get about $3K PTC with $100K CG (income).

I used calculator here: https://www.kff.org/interactive/subsidy ... id-relief/
and the result was
Based on the information you provided, your income is equal to 397% of the poverty level. This means you are likely eligible for financial help through the Health Insurance Marketplace. An estimate of your cost for coverage and amount of financial help in 2021 are provided below. To find out your actual amount of financial help and to get coverage, you must go to Healthcare.gov or your state’s Health Insurance Marketplace.

Estimated financial help:
$270 per month ($3,239 per year)
as a premium tax credit. This covers 24% of the monthly costs.
Your cost for a silver plan:
$852 per month ($10,223 per year)
in premiums (which equals 9.83% of your household income).
The most you have to pay for a silver plan:
9.83% of income for the second-lowest cost silver plan
Without financial help, your silver plan would cost:
$1,122 per month ($13,462 per year)
J295
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Re: Tax gain harvest or Roth conversion

Post by J295 »

red light wrote: Fri Oct 22, 2021 5:56 am
dodecahedron wrote: Fri Oct 22, 2021 2:57 am Not sure about your assertion that you can harvest $100K gain and remain eligible for PTC for next four years. How big is your family ("tax household") size? Do you realize that your harvested gains will be included in your MAGI for PTC purposes?
There are 4 of us (3 adults + 1 child). It looks like we could get about $3K PTC with $100K CG (income).

I used calculator here: https://www.kff.org/interactive/subsidy ... id-relief/
and the result was
Based on the information you provided, your income is equal to 397% of the poverty level. This means you are likely eligible for financial help through the Health Insurance Marketplace. An estimate of your cost for coverage and amount of financial help in 2021 are provided below. To find out your actual amount of financial help and to get coverage, you must go to Healthcare.gov or your state’s Health Insurance Marketplace.

Estimated financial help:
$270 per month ($3,239 per year)
as a premium tax credit. This covers 24% of the monthly costs.
Your cost for a silver plan:
$852 per month ($10,223 per year)
in premiums (which equals 9.83% of your household income).
The most you have to pay for a silver plan:
9.83% of income for the second-lowest cost silver plan
Without financial help, your silver plan would cost:
$1,122 per month ($13,462 per year)
This calculator is before the covid relief bill, and it has a link to a new calculator after the covid relief bill. I used the updated one, and for our family of two 62 year olds after the covid relief bill we can take our MAGI from $68k up to $120K with no effect on our net premiums (I'm using approximate numbers here; and just discovered this last night so need to drill down a bit more). This is because in our case our subsidy at $68k is around $30k yet we choose a Bronze HD Plan that "costs" $25k (and our state happens to be expensive). So, when income goes up to $120k according to the calculator our subsidy drops to $25k, which still "covers" our premium costs. (I'm using subsidy of course to mean the PTC). So if I'm right here it seems like a home run (for 2021 and 2022) as it frees up an additional $52k of space with no cost, and space above that on a slope instead of a cliff.
furwut
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Re: Tax gain harvest or Roth conversion

Post by furwut »

Mike Piper @ the Oblivious Investor has some thoughts:
Which Dollars to Spend First Every Year in Retirement
… if you have taxable-account assets that you can spend without generating any tax cost, it makes sense to spend those assets before spending retirement account assets. And if, when following such a plan, you have low-tax-rate space in a given year that you wouldn’t otherwise be using up, you can fill that space with Roth conversions.
Jovby
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Re: Tax gain harvest or Roth conversion

Post by Jovby »

red light wrote: Thu Oct 21, 2021 3:02 pm
We will not need the $2M tIRA and would like to pass it to our children (2). Based on the Retiree Portfolio Model, https://www.bogleheads.org/wiki/Retiree_Portfolio_Model, without doing any Roth conversion, the tIRA balance might grow to $6M+ (today's dollars) after 30 years. If this is true, our children would have to pay lots of tax. We prefer not to push this tax liability to them and wonder if we should use this next 4 years for conversions.

On the other hand, we also have a $400k LT capital gain which we could harvest without paying any federal tax.
Another consideration is the inheritance tax. You are likely over the current limit, but that may very well change over the next 30 years. Converting to Roth will make for lower balances and therefore more likely to fall under the future inheritance tax exclusions.

What is your plan for the LT capital gain? If it is for your children they will get a step up in basis so no point paying the taxes now.
captaindorky
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Re: Tax gain harvest or Roth conversion

Post by captaindorky »

Following this thread as well. My situation is a little different, but we are faced with similar decisions.

FIREd last October. No W2 income. I'm 50. DW is 49. Decided to take an every other year approach to withdrawals and conversions. This year pulled out enough from taxable to fund 2 years of living expenses, taking advantage of 0% LTCG, then topping off with Roth Conversions to ensure LTCG remain at 0%. Next year, will maximize Roth Conversions up to the 22% bracket.

Does this seem sensible? Feel free to poke holes in my approach. :)

CD
J295
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Re: Tax gain harvest or Roth conversion

Post by J295 »

captaindorky wrote: Fri Oct 22, 2021 10:28 am Following this thread as well. My situation is a little different, but we are faced with similar decisions.

FIREd last October. No W2 income. I'm 50. DW is 49. Decided to take an every other year approach to withdrawals and conversions. This year pulled out enough from taxable to fund 2 years of living expenses, taking advantage of 0% LTCG, then topping off with Roth Conversions to ensure LTCG remain at 0%. Next year, will maximize Roth Conversions up to the 22% bracket.

Does this seem sensible? Feel free to poke holes in my approach. :)

CD
That makes sense to me, especially here at the start while you’re kind of feeling your way along and getting settled into the Financial aspects of being retired.

As indicated for us up thread, the premium tax credit under the ACA has been a big driver for us. Ymmv.

I transitioned at age 53. I hope you and your spouse are enjoying this new adventure as much as my wife and I have the last nine years.
captaindorky
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Re: Tax gain harvest or Roth conversion

Post by captaindorky »

The ACA and health insurance has been a challenge. Right now we are paying out of pocket for a short term catastrophic plan, which is still somewhat reasonable and allows us to make our financial moves without having to worry about MAGI and all the complexities involved with that.

I suppose it would be worth the effort to check scenarios where we could get an ACA plan. It seems like a complex balancing act and without subsidies the plans are extremely expensive.

CD
gotlucky
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Re: Tax gain harvest or Roth conversion

Post by gotlucky »

I think one should definitely fill the 0% rate with Roth conversions, interest and other ordinary income. For MFJ taking standard deduction and full HSA contribution, that's $32,300 for 2021.

The next $19,900 in conversions would be taxed at 10%, which most people should do unless their only projected income in retirement will be SS and RMDs. If that's your case, you need to do some rough estimations as to what your RMDs and other ordinary income will look like. What you want to avoid is paying 10%, 12% or 24% now when could possibly pull RMDs at the 0% or 10% rate, which could be the first $100k of income 20 years from now. If you aren't filling that 0% bracket at anytime in the future with ordinary income, including when you are subject to RMDs, you overpaid in taxes somewhere.

I presently don't fill the entire 12% bracket with conversions because I like my qualified dividends at the 0% rate and the lost PTCs can make the 12% marginal rate more like 30% when you get around $77k of AGI (at least it was that way in 2020).

Of course, if you know you'll have substantial pension, rental, trust, inherited IRA or other income that will push you into the 30%+ bracket when you'll be subject to RMDs, you should probably be more willing to convert at the 24% rate today.
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red light
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Re: Tax gain harvest or Roth conversion

Post by red light »

furwut wrote: Fri Oct 22, 2021 8:08 am Mike Piper @ the Oblivious Investor has some thoughts:
Which Dollars to Spend First Every Year in Retirement
… if you have taxable-account assets that you can spend without generating any tax cost, it makes sense to spend those assets before spending retirement account assets. And if, when following such a plan, you have low-tax-rate space in a given year that you wouldn’t otherwise be using up, you can fill that space with Roth conversions.
Thanks. It sounds like Mike Piper might approve option 1) Harvest $100K gain each year + pay $0 federal tax + eligible for some premium tax credit (PTC)?


joverby wrote: Fri Oct 22, 2021 10:14 am Converting to Roth will make for lower balances and therefore more likely to fall under the future inheritance tax exclusions.
I'm confused about this statement. Could you clarify and/or give an example? I assume inheritance tax = estate tax


gotlucky wrote: Fri Oct 22, 2021 4:38 pm Of course, if you know you'll have substantial pension, rental, trust, inherited IRA or other income that will push you into the 30%+ bracket when you'll be subject to RMDs, you should probably be more willing to convert at the 24% rate today.
Based on https://www.bogleheads.org/wiki/Retiree_Portfolio_Model without Roth conversions (base case), our marginal tax rate would be in the 24% bracket (if it still exits then).

If I convert this year to fill up the 22% tax bracket, it would cost about 30% when I include state tax and lost of PTC according to https://www.bogleheads.org/wiki/Tools_a ... ce_toolbox
So a $197K (top of 22%) conversion, would cost us about $60K = $27K Fed + 10K State + 6K LTCG (to pay tax) + 17K PTC
This is very stiff considering we are at 0% tax rate if do nothing. It also makes the gain harvesting option much less painful.
furwut
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Re: Tax gain harvest or Roth conversion

Post by furwut »

red light wrote: Sun Oct 24, 2021 6:45 am
furwut wrote: Fri Oct 22, 2021 8:08 am Mike Piper @ the Oblivious Investor has some thoughts:
Which Dollars to Spend First Every Year in Retirement
Thanks. It sounds like Mike Piper might approve option 1) Harvest $100K gain each year + pay $0 federal tax + eligible for some premium tax credit (PTC)?
I interpret him as saying spend your taxable dollars (savings & taxable investments) to support lifestyle while generating the lowest taxable income and using whatever leeway you have to preferably do Roth conversions.
The point here is that, if you have taxable-account assets that you can spend without generating any tax cost, it makes sense to spend those assets before spending retirement account assets. And if, when following such a plan, you have low-tax-rate space in a given year that you wouldn’t otherwise be using up, you can fill that space with Roth conversions.
With your considerable savings and by selling your taxable investments for the least capital gain you should have a lot of room for converting even if still keeping total income low enough to garner some ACA premium tax credit.
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Tubes
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Re: Tax gain harvest or Roth conversion

Post by Tubes »

captaindorky wrote: Fri Oct 22, 2021 10:28 am Following this thread as well. My situation is a little different, but we are faced with similar decisions.

FIREd last October. No W2 income. I'm 50. DW is 49. Decided to take an every other year approach to withdrawals and conversions. This year pulled out enough from taxable to fund 2 years of living expenses, taking advantage of 0% LTCG, then topping off with Roth Conversions to ensure LTCG remain at 0%. Next year, will maximize Roth Conversions up to the 22% bracket.

Does this seem sensible? Feel free to poke holes in my approach. :)

CD
Hey CD, this is the strategy we're using. Every other year. LTCG years to get living expenses for 2 years. I think it works best for those of us with a long runway before SS distributions and RMDs. Also, we have no children so we don't give a care about step up basis.
gotlucky
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Re: Tax gain harvest or Roth conversion

Post by gotlucky »

red light wrote: Sun Oct 24, 2021 6:45 am If I convert this year to fill up the 22% tax bracket, it would cost about 30% when I include state tax and lost of PTC according to https://www.bogleheads.org/wiki/Tools_a ... ce_toolbox
So a $197K (top of 22%) conversion, would cost us about $60K = $27K Fed + 10K State + 6K LTCG (to pay tax) + 17K PTC
This is very stiff considering we are at 0% tax rate if do nothing. It also makes the gain harvesting option much less painful.
I'm definitely no expert on this stuff. Based on my rough calcs using KFF (married 52yos w/2 kids), once your taxable income exceeds $133k your marginal rate will be subject to both 22% federal taxes AND the 8.5% lost PTCs. That would be effective marginal rate of 30.5% without state taxes. The effective marginal rate on qualified dividends and LTCGs is 23.5%.

But even if you only fill the 12% federal tax bracket with conversions, you're effective marginal rate with lost PTCs is between ~20-28%. I know that seems odd because the rates are graduated between 0 and 8.5% but your MAGI determines which rate you are in and then ALL your income is subject to that rate. Worst of all: One may think he is paying 0% on LTCGs, but with the lost PTCs he winds up paying between 8 and 16.6%. Ouch.

Things were so much easier when PTCs weren't a factor!

Please feel free to correct me if I'm way off here.
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